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Online Marketplace for Life Settlement Transactions
Wednesday March 12, 2008 12:00AM | Click here to visit original article.
 An electronic marketplace for life settlements is slowly emerging. Before the end of the first quarter, The Goldman Sachs Group Inc. and National Financial Partners Corp., both of New York, are expected to launch the Institutional Life Services electronic platform for life settlements. It will compete against LexNet, an eight-month-old online-auction market operated by the LifeMarkets division of New York-based Cantor Fitzgerald LLP. Last month, Cantor Fitzgerald announced a marketing and distribution alliance with Transamerica Corp. of Los Angeles that is intended to increase volume. Life settlements, in which a life insurance policyholder sells his or her policy to a third party in order to earn more than the surrender value offered by the policy issuer, are booming. The face value of policies involved in life settlements stood at $6.1 billion in 2006, up from $3.3 billion in 2004, said Scott Hawkins, an analyst with Conning Research & Consulting Inc. of Hartford, Conn. He said volume could reach $140 billion in face value by 2016. The intent of the electronic platforms is to make bidding more competitive and pricing more transparent. ``[The new entrants] are going to bring capital to the marketplace, no doubt about that,'' said Doug Head, executive director of the Life Insurance Settlement Association of Orlando, Fla., a trade group representing insurance brokers and agents, as well as the institutions that buy policies. In the meantime, however, the electronic market at Cantor Fitzgerald has its shortcomings, he said. ``They can arrive at a price real fast, but then the buyer on the other end wants another document, another disclosure, ad nauseam,'' Mr. Head said. Market inefficiencies Mr. Hersch pointed out the inefficiencies of the offline marketplace. ``In a standard case, the insured calls an agent if he wants to sell a policy, and the agent calls three, four or five brokers and asks for offers,'' he said. ``You have multiple brokers representing a policy, but no one knows who's really representing it, because no one has an exclusive. We can close every transaction we do, because we sell [each policy] exclusively.'' The low surrender value of life insurance policies - about 5% of the face value, compared with the 18% a policyholder receives in a typical life settlement - is the reason the life settlement industry exists, Mr. Head said. In the United Kingdom, he added, insurers are required to tell policyholders who are about to surrender their policies or allow them to lapse that they have the option of seeking a settlement in the secondary market. ``That's something American insurers would scream and yell about for days,'' Mr. Head said. ``If the insurance industry raised its surrender values, the settlement industry would go away. But insurers won't, can't or don't want to do that.'' ---Source |
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